Weekly Euro Update - 18 May 2010

Published on 18/05/2010 in Your Spanish Home


Investors wait to see how the Lib-Con coalition will tackle the debt.  Dollar and yen prosper as nervous investors shun the euro.

The pound almost made it to a year high but backed off at the crucial moment.  Despite falling back slightly it still holds two and a half cents to the good on the week.

Euro houseFollowing the previous week's general election political worries about sterling were replaced by... political worries.  There was nervousness when it took five days to form a government and uncertainty afterwards.  From financial markets' point of view the Liberal-Conservative coalition is probably the least worst alternative under the circumstances, given that a single-party government is out of the question.  Dave and Nick are giving every impression that they are dedicated to the job of reducing the country's debt to something more akin to 'normal' levels.  They have mentioned spending cuts - including ministerial salaries - and efficiency savings amounting to £6 billion this year.   There is reason to be optimistic that the first coalition for 65 years will stick to its mission and do the job the nation needs. 

But investors need more than vague promises before they will be able fully to renew their faith in sterling, as will the credit ratings agencies. A quick-fix spending review and the Queen's Speech next week will give an outline as to how the Camelegg government intends to prioritise its tasks; it will be the best part of a month beyond that before the really serious stuff comes out in the Proper budget (as opposed to the flimsy pre-election one that nobody really believed). Investors and ratings agencies will not be satisfied unless George Osborne's budget speech is dripping with the blood of quangos and diversity outreach counsellors.  They are prepared to be patient: after all, it would be silly to bounce a new government into precipitate decisions before it has searched the cupboards of Downing Street and Whitehall for financial skeletons.  But patience and enthusiasm are not quite the same thing.  Sterling will have to wait for its renaissance.

In the meantime, the economy is bumping slowly up the same hill it had been tackling before the election.  House prices, according to the RICS, the DCLG and Rightmove, are rising at a sustainable pace.  Industrial and manufacturing production in the UK grew by 2.0% and 3.3% in the year to March.  NIESR (The National Institute for Economic and Social Research, an apolitical body) estimates that the economy grew by +0.5% in the year to April.  Dole claims went down by another 27k in April.  The bad news is still there as well.  Britain's trade deficit went up by a fifth in March as a result of increased imports.  The weak currency is not doing its job of balancing trade.

Financial markets initially had faith in the European Union's €750 billion financial stability fund, intended to protect all EU countries from the problems from which Greece is suffering at the moment.  As has become usual, it did not take long for that support to evaporate.  A classic case of 'too much, too late' saw Germany step up to the plate with a real offer of genuine money but the damage to confidence had already been done.  It is no longer a matter of possible Greek default. Portugal and Spain are tarred, fairly or not, with the same brush and the concern now is that the Greek tragedy could mushroom into another global financial crisis.  With that in mind, investors favoured the dollar and the Yen as the safest places to park their money until the problem blows over.

There is real concern that Brussels has screwed this one up, egged on by German voters who see no reason why they should pay for the gold-plated pensions of Greek civil servants.  As they look at it now, the cosmic scale of the stability fund is almost  an endorsement of their assumption that problem is a huge one.  The European Central Bank has (probably reluctantly) agreed to buy Greek government bonds which could turn out to be worthless if Greece defaults on its debt.  At least for the time being, the euro has blown away any prospect of deposing the US dollar as the world's reserve currency of choice.

Sterling is in limbo until the new prime minister unveils his plans to sort out the debt. It is being dragged down by the ailing euro (as is the Swiss franc, for slightly different reasons)  against the US dollar and the Japanese yen unless and until investors rethink their doomsday scenario for southern Europe.  Against the euro, however, it is not looking too shabby.  Buyers of the euro should hedge half their requirement.

Written by: Moneycorp

About the author:

For more information about how Moneycorp can save you money when sending money abroad, please visit the dedicated Eye on Spain/ Moneycorp website.

Right arrow icon Send to friends   Right arrow icon Printer friendly version    Right arrow icon Submit your own article


Only registered users can comment on this article. Please Sign In or Register now.

Comment Using Facebook:

Related articles in this category

20 Home Staging Tips With a Difference

A Week in Spain

Achieving a Comfortable Temperature in Your Spanish Home

Are The Banks Paying Their Community Fees, IBI, Etc?

Bank Guarantee For Renting Your Property

Big Spanish Property Price Drop – Real Case Study

Bills, Bills, Bills

Can't Afford Your Mortgage In Spain? These Are Your Options

Can't Sell? Rent It Out With Option To Buy

Community Commotion

Coping with the limited space of an apartment

Counting The Costa Locking Yourself Out

Currency Update - Eurozone Jitters

Currency Update - Eurozone Jitters Continue Following Spanish Bailout

Currency Update - Is Spain in Trouble?

Currency Update - Sovereign Debt and the Euro's continued fall

Currency Update - What Is Happening To Europe?

Currency Update April 2011

Currency Update August 2011

Currency Update March 2011

Currency Update: Euroland and US - Where are we at the moment.

Demolitions in Spain

Do I Need To Pay Capital Gains Tax In Spain?

E.T Phone Home....but Maybe not from Spain

Entering a Community and the Role of the President

Euro Currency Update July 2011

Euro Currency Update: October 2011

Euro vs Sterling Currency Market Update

Expats Hit Hard By Property Tax Probe

Furnishing Your Property in Spain

Furnishing Your Spanish Property For Holidays Or Rentals

Getting Your Pool Ready for Summer

Home Insurance in Spain

Horizontal Property Act - Part 1

Horizontal Property Act - Part 2

Horizontal Property Act - Part 3

Horizontal Property Act - Part 4

Horizontal Property Act - Part 5

Horizontal Property Act - Part 6

Horizontal Property Act - Part 7

How Do You Value A Property In Spain?

June Currency Review of Euro Vs Sterling - Things Are Looking Up

Long Term Rentals in Spain

Maximising The Value Of Your Property

Mortgage Arrears – Is "Handing Back The Keys" A Solution?

NIE Numbers And Why They Are Important

Protect Your Home in Spain From Insurance Claims This Winter

Ratable Values Are Being Revised In Marbella

Recovering Community Fee Debts From Overseas Owners

Security Is The Key For Your Home In Spain

Some Spanish Property Market Good News?

Spain Ends Monopoly Of Electricity Supplies – Could Your Community Make Savings?

Spanish Property Market Values - What Is The Truth?

Sterling - Euro Reaches New Highs

Swimming Pool Regulations

Target the Spanish

The Day the Don Juan Community Defeated Don Juan

The Impractical Side Of Spanish Architects

The Nota Simple Explained

The Pound And Euro Face Uncertain Times

The Spanish Property Crisis - How long will it last?

The Stirling Euro Yo Yo Effect

There's Something About Spain

Tips On Selling Your Spanish Property The Distressed Way

Top Sales Tips: Get The Best Out Of Your Estate Agent

Top Tips For Insuring Unoccupied Holiday Homes In Spain

TRG for Sellers

Update On The Euro From Moneycorp

Valenica Land Law Abuses Fight For Justice Continues

Weekly Euro Update - 18 May 2010

Weekly GBP Euro Update - 20 July 2010

What is a comunidad de propietarios?

What The Future Holds For The Spanish Property Market

What to Do If Unable to Pay Off a Mortgage to a Bank in Spain?

What's Happening With Aifos?

Where Is The Eurozone Economy Heading?

Why Do So Many Still Put Spain Down?

Why Is My Spanish Property Not Selling?

Why to Insure Your Spanish Home in UK

Wills in Spain - No Will....No Way

Your Property on the Web - Simple!

Click here for a list of all the articles from our magazine 

Spain insurance services

This site uses cookies. By continuing to browse you are agreeing to our use of cookies. More information here. x